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- Subscribe - Contact Us - Rate Card - Place an Ad Archives Revels Classifieds Real Estate Menu Guide Wedding Weather Subscribe Contact Us January 5, 2006 After the holidays, don’t fall into the credit trap Counseling services, Web tools available to help get on track By Vickie Aldous Ashland Daily Tidings The ringing of cash registers and swiping of plastic for the holidays can lead to a sobering reality as the payments begin. Orville Hector | Ashland Daily Tidings One New Year’s resolution that is frequently at the top of consumers’ lists is to gain control over debt. That resolve is only strengthened when the first post-holiday credit card bills start arriving in the mail. Gathering up bills and determining how much you owe is the first step toward greater financial responsibility, according to Consumer Credit Counseling Service of Southern Oregon. After reviewing income and expenses, reallocate spending toward paying off debt, staff members at the nonprofit agency advise. Consumers who pay only the minimum amounts due on credit card bills will end up paying more — and over a longer period of time, they said. “The credit card companies don’t want people to know how much they will pay in interest if they only pay the minimum,” said Matt Conens, marketing director for the counseling service. He recommended people at least double the amount of the minimum payment when paying credit card bills. A number of Web sites feature calculators that help consumers get a handle on their debts, he noted. At www.bankrate.com, consumers can enter the amount due on their credit cards, the interest and the minimum payment to see how long it will take them to pay off the balance and what the total interest charges will be. For $1,000 credit card debt with a 15 percent interest rate and a 3 percent minimum payment due each month, Bankrate.com shows a consumer will pay a total of $1,576.63 over nearly nine years by only paying the minimum. But Bankrate.com also offers a calculator where consumers can figure out a payment plan that fits their goals. Just enter the amount of the debt, the interest rate and the number of months in which you wish to have the debt paid off. That calculator shows that the $1,000 debt with a 15 percent interest rate can be paid off in 12 months for $90.26 per month, for a total cost of $1,083.12. In addition to figuring out debts and prioritizing paying off debts, the consumer credit counseling service staff members recommend putting away credit cards, creating a holiday savings account once debts are paid, making a budget in advance of next winter and buying presents throughout the year. They also advise caution in the face of credit card offers that promise 0 percent interest rates on balance transfers because the debt will come due at a high interest rate once the promotional period ends. Conens said consumers also should call their credit card companies and ask, “What’s my interest rate now? Is this the best you can do?” Consumers with good payment histories frequently find that credit card companies are willing to lower their interest rates, he said. Many financial advisers also tell consumers to get reports on their FICO scores — the number from 300 to 850 that lenders use to decide how risky a potential customer is and what interest rate to charge the person. In order of importance, a FICO score is calculated based on a person’s payment history, amounts owed, length of credit history, new credit and types of credit used, according to www.myfico.com. The Web site sells FICO reports from the three national credit reporting agencies, Experian, TransUnion and Equifax. But under federal law, consumers are entitled to a free annual report from each of the credit reporting agencies. Visit www.annualcreditreport.com or call (877) 322-8228. Consumers need to provide their names, social security numbers, birth dates and addresses. Ordering a credit report from all three reporting agencies — rather that just one — can be confusing on the Web site. If calling, entering numbers using the telephone number pad may not work when trying to order all three reports. Say the numbers loudly and clearly instead. Maintaining a high FICO score by being financially responsible will save a consumer significant amounts of money in interest, and may even determine whether a consumer can get a car loan or mortgage. For example, www.myfico.com reports that a person with a high 760 to 850 FICO score can secure a 5.9 percent rate on a $216,000 30-year, fixed-rate mortgage. That monthly payment would be $1,283. However, a person with a FICO score of 620 to 639 will pay $1,510 per month for the same mortgage, or $227 more per month and $2,724 more annually. In other words, the financially prudent person can make a mortgage payment and a new car payment each month for about the same amount of money the financially irresponsible person is paying for just a mortgage payment. Consumer Credit Counseling Service of Southern Oregon offers a number of classes to help consumers. The class “Get Checking” on Jan. 9 is designed to help students avoid bounced checks and also includes budgeting and credit information. For all ages, “Budgeting Made Easy” is scheduled for Jan. 19, followed by “Extreme Credit Makeover” on Feb. 1, where people can learn ways to improve their credit scores and how to save money when using credit. Most classes cost about $25. For class information, visit www.cccsso.org or call 779-2273. The counseling service also sells a FICO report from one reporting agency for $15, including the counseling session, Conens said. Staff writer Vickie Aldous can be reached at 479-8199 or [email protected]. 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